Saturday, August 12, 2017

"...modern information technology is the cause of rising income and wealth inequality since the 1970's and has contributed to slow growth of wages..."

Rest is fine.

From Stanford via Economist's View:

On the Formation of Capital and Wealth

Abstract

We show modern information technology (in
short IT) is the cause of rising income and wealth inequality since the
1970's and has contributed to slow growth of wages and decline in the
natural rate. We first study all US firms whose securities trade on
public exchanges. Surplus wealth of a firm is the difference between
wealth created (equity and debt) and its capital. We show (i) aggregate
surplus wealth rose from -$0.59 Trillion in 1974 to $24 Trillion which
is 79% of total market value in 2015 and reflects rising monopoly power.
The added wealth was created mostly in sectors transformed by IT.
Declining or slow growing firms with broadly distributed ownership have
been replaced by IT based firms with highly concentrated ownership.
Rising fraction of capital has been financed by debt, reaching 78% in
2015. We explain why IT innovations enable and accelerate the erection
of barriers to entry and once erected, IT facilitates maintenance of
restraints on competition. These innovations also explain rising size of
firms. We next develop a model where firms have monopoly power.
Monopoly surplus is unobservable and we deduce it with three methods,
based on surplus wealth, share of labor or share of profits. Share of
monopoly surplus rose from zero in early 1980's to 23% in 2015. This
last result is, remarkably, deduced by all three methods. Share of
monopoly surplus was also positive during the first, hardware, phase of
the IT revolution. It was zero in 1950-1962, reaching 7.3% in 1965
before falling back to zero in 1970. Standard TFP computation is shown
to be biased when firms have monopoly power.